Cash on hand at St. Louis firms down by $2.5 billion

Cash balances of companies in the S&P 500 are on track to reach a record high $1.5 trillion this year, according to a recent JPMorgan report. However, St. Louis public companies are bucking the trend, decreasing their cash holdings by more than $2.5 billion this year, a 13 percent decline.

Locally, 24 companies have less cash on hand as of the end of their most recent quarters than at the end of 2011. Of those with more cash, only seven companies have increased their holdings by more than $100 million.

Express Scripts, St. Louis’ largest public company, decreased its cash holding by more than any other local company. Express Scripts had $1.25 billion cash on hand as of the end of September, down $4.37 billion from the end of 2011. The company, which is led by George Paz, used more than $10 billion in cash to finance its Medco merger, but this was partially offset with an increase of more than $5 billion in cash from financing activities and operations.

Olin Corp. also put its cash to work this year. Olin entered 2012 with $304.8 million cash on hand, but ended the third quarter with $103.1 million, a 66 percent decrease. This drop was largely due to its August purchase of KA Steel of Lemont, Ill., a distributor of caustic soda and manufacturer and seller of bleach, for $312.3 million cash.

American Railcar spent down two-thirds of its cash from the end of 2011 through the third quarter of 2012, a $208 million decline to $99.2 million. The cash was spent on retiring $100 million of unsecured notes in September and continued investments in railcars for lease, the company said.

Charter Communications is one local firm that reported an increase in cash, but it’s only temporary. Charter ended the third quarter with $868 million in cash due to the sale of $1.25 billion in notes in September. That cash will be used to pay off $678 million of notes callable on Nov. 30. In addition, Charter already spent some of that cash in October, 10 days after the end of the third quarter, on a make-whole redemption, in which Charter paid holders of the callable notes a lump sum for interest they will not receive, a Charter source explained. At the end of the fourth quarter, Charter’s cash balance will be much lower.

Excluding Charter’s excess cash on hand, St. Louis companies have $3.2 billion less cash than at the end of 2011, a 17 percent drop. Much of that spending is attributable to expansion and acquisition projects, as in Express Scripts’ and Olin’s cases.

“If a business sees an opportunity to grow their company, they’ll take advantage of that opportunity, irrespective of the political and regulatory environments,” said Gerry Sparrow of Sparrow Capital Management.

While more St. Louis companies are spending cash than accumulating it, several companies point to uncertainties around issues such as employee costs, health-care costs, regulatory costs and tax burdens. Then there is the impending “fiscal cliff,” a combination of federal tax increases and budget cuts set to take effect Jan. 1 unless Congress can reach a compromise. These issues have slowed corporate spending, said Mike Lissner, partner at Acropolis Investment Management, but only temporarily. “Companies have said that they want to make an investment, but they want to hold off until they have more certainty,” he said. “(The cash) will have to be deployed at some point. Shareholders want to see the cash working for them.”

To be ready for potential acquisitions, Stifel Financial increased cash on hand by more than $25 million to $193 million as of the end of the third quarter, a 15 percent increase from the end of 2011. “We’ve raised capital because we want to be in a position to take advantage of opportunities,” President and CEO Ron Kruszewski said.

And Stifel has done just that. The company announced Nov. 5 that it would purchase New York-based KBW Inc. for $575 million in cash and stock.

Young Innovations, which makes and supplies dental equipment, increased cash by the greatest percentage of any St. Louis public company — by more than 1,300 percent to $15 million.

Arch Coal increased its cash by more than $400 million to $551 million from the end of 2011 to the most recent quarter, according to SEC filings, and plans to continue this trend. The company “expects to end the year with roughly $600 million of cash and available funds on hand,” John Drexler, senior vice president and chief financial officer, said in the filing. “We believe this is a prudent course of action in light of the challenging coal markets at present,” the company said in a statement to the Business Journal.

Reinsurance Group of America added the most cash to its account since the end of 2011 (second to Charter’s temporary bump) — an increase of $641 million to $1.6 billion. Like Charter, two-thirds of this increase is due to a $394.6 million debenture sale. RGA will use these funds “for general corporate purposes,” according to a SEC filing.

Post Holdings, which was spun off from Ralcorp Holdings earlier this year, has added more than $70 million cash to its balance sheet, largely due to debt arrangements from the spin-off.